Indian CIOs look offshore

Gartner says skills growth bites back

By John Ribeiro, IDG News Service

June 12, 2007

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It may now be the turn of Indian companies to offshore their IT services requirements.

Indian CIOs will have to consider outsourcing offshore because of a shortage of IT skills in the country and inadequate services standards of local service providers, according to research firm Gartner Inc.

Indian companies have been looking at India alone for outsourcing, a spokesman for Gartner India said on Tuesday. They will now have to look at other locations like Singapore, Hong Kong, and even the US, he said.

The services offshore will come at a premium to Indian prices but will at least ensure that Indian CIOs get quality services, the spokesman said.

Demand for skilled IT personnel from initiatives like the Indian government's e-governance programme (NEGP), as well as resource-hungry Indian offshore service providers, are outstripping local supply, according to Gartner. Rapid economic growth in India is exacerbating the problem and local CIOs are finding it difficult to manage the shortage of skilled local IT resources as business units step up their internal IT requirements and schedules, the research firm added.

India’s gross domestic product (GDP) grew 9.2% in the country’s fiscal year to March. A recent Gartner survey conducted among more than 1,400 CIOs worldwide showed that IT budgets in India had the highest growth of 16%, compared with an average of 3% in the rest of the world.

Gartner warned in February that the problem for user organisations in India may only get worse as outsourcing companies start hiring business line managers from user organisations to build their vertical industry expertise. As large Indian outsourcers grow in revenue by 30% to 40% each year, they will hire business managers from the banking, manufacturing and retail industries that bring the business knowledge that can be integrated into their services offerings, it added.

The focus of Indian outsourcers is primarily on markets in the US and Europe where margins are far higher than in India, according to Gartner. Multinational services companies have targeted outsourcing deals by large Indian companies but the focus so far has been on very large deals, Gartner said in February.

If Indian CIOs outsource work offshore, that may get Indian companies to try and reverse the trend, the Gartner spokesman said.

An alternative to offshore outsourcing is for Indian CIOs to work with second and third-tier providers in India who are interested in local business, said the Gartner spokesman. The right provider may be able to provide domestic resources and perhaps a higher level of attention to issues and demands, he added.